Côte D'Ivoire's Fiscal Deficit To Narrow Slightly In 2020

At Fitch Solutions, we expect that Côte d'Ivoire’s fiscal deficit will narrow very slightly in 2020 on the back of strong revenue growth and contained personnel costs.

That said, we expect that high capital spending and rising debt servicing costs will prevent faster fiscal consolidation.

In line with these expectations, we forecast that the fiscal deficit will narrow from an expected 3.2% of GDP in 2019 to 3.0% in 2020.

There is a risk to our forecast stemming from the potential for fiscal slippage in the run-up to the election in 2020, which could see the deficit widen.

At Fitch Solutions we expect that the fiscal deficit will narrow from an expected 3.2% of GDP in 2019 to 3.0% in 2020 on the back of strong revenue growth. Côte d'Ivoire’s 2020 budget outlined plans for higher spending but also plans for revenue generation that are likely to continue driving some growth in government income. The Ivorian government expects revenue growth of 7.7% in 2020, due in part to improved tax collection apparatus and robust economic growth. Reforms to the revenue collection apparatus include:

Issuing every taxpayer with a single identification number.

The digitisation of tax assessment and collection for small- and medium-sized businesses.

Issuing a trader registration card.

Improving tax auditing.

Government Revenues Will Rise, If Not By As Much As Government Projections

Alongside improved revenue collection measures, we expect economic growth to be fairly robust, which should boost revenues on income tax, VAT and taxes on capital. The government is expecting income tax and VAT revenues to grow by 7.6% and 10.2% respectively in 2020, while it expects taxes on capital to rise by 22.2%. Given that the government’s revenues undershot targets by 7.1% in 2019, we do not believe that revenues will necessarily grow by this amount for each area; moreover, falling oil prices make us doubt the government’s expectation for a 20.9% increase in oil revenues next year. That said, we expect that revenue growth will be sufficient to see modest fiscal consolidation.

Containment Of Personnel Costs To Help Fiscal Consolidation

Côte d'Ivoire – Personnel Costs, 2014-2020

We also note that the government’s relative success in containing personnel costs will likely continue and contribute to a slightly narrower fiscal deficit. Personnel costs have fallen from 26.7% of government spending in 2014 to 23.5% in 2019 with annual growth of personnel spending falling from 13.1% to 5.2% over the same period. We believe that this shows that government plans such as the hiring of only one new civil servant for every two that leave is bearing some fruit.

Debt Servicing Costs And Capital Spending To Continue Uptrend

Côte d'Ivoire – Debt Servicing Costs & Investment Spending

Though we expect that fiscal consolidation will go ahead, we expect that it will be limited by pressures on expenditure from debt servicing and capital spending. The 2020 budget included plans for an 8.9% increase in capital spending based around construction projects that include social housing, major infrastructure projects and the construction of a major stadium. Though capital spending undershot expectations by 17.7% in 2019, it will nevertheless increase in 2020 as major government capital spending plans go into motion.

We also expect that debt servicing costs will remain in an uptrend further increasing spending in 2020 and preventing faster consolidation. The Ivorian government has said that it expects debt servicing costs to rise by 17.3% in 2020, coming up to 26.5% of total spending. The relatively large US dollar debt burden, at 28.5% of total government debt, also will increase debt servicing costs as we expect that the US dollar will strengthen in 2020 relative to the euro – to which the West African franc is pegged.

There remains a risk to our forecast for fiscal consolidation if the government were to undershoot its revenues significantly – by a similar amount or greater to its 2019 revenue – and/or due to the potential for overspend in the run-up to the election. If government revenues were to undershoot expectations by the same or a similar amount as in 2019, while spending is rising, then we would expect a larger deficit.